You have graduated and you have interviewed at several companies. One company presents you with an offer of employment but two different contracts. Offer A is a 5 year contract for $200,000 in 5 equal yearly installments. Offer B is a 5 year contract for the same amount paid in installments that will increase by 5% per year. Which contract is the better deal?
Offer B is a better deal as it will result in more present value at year zero as compared to the offer A due to annual increase of 5% per year feature in this offer.
A company makes the decision to lengthen their payables period to pay vendors/suppliers. How will this affect the statement of cash flow?
This will increase the cash inflows as less cash was paid to accounts payable due to lengthening the accounts payables
What happens to the FV (future value) of an annuity if the interest rate increases (R)? What will happen to the PV (present value)?
With the increase in the interest rate, the future value will also increase as this will result in more interest to be compounded. While, the increase in the interest rate will decrease the present value.
Offer B is a better deal as it will result in more present value at year zero as compared to the offer A due to annual increase of 5% per year feature in this offer.
A company makes the decision to lengthen their payables period to pay vendors/suppliers. How will this affect the statement of cash flow?
This will increase the cash inflows as less cash was paid to accounts payable due to lengthening the accounts payables
What happens to the FV (future value) of an annuity if the interest rate increases (R)? What will happen to the PV (present value)?
With the increase in the interest rate, the future value will also increase as this will result in more interest to be compounded. While, the increase in the interest rate will decrease the present value.
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